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4 Key Roadblocks to U.S. Manufacturing Competitiveness

Manufacturing has been driving the recent — albeit tenuous — economic recovery in the U.S. Yet maintaining and strengthening the nation’s manufacturing competitiveness in the global market will require tremendous planning, effort and focused financial investment in four key areas, a new study says.

Overall, manufacturing has been a relative bright spot for the United States economy during the recovery. Until this summer, the sector had expanded for 34 months in a row. However, for the first time since July 2009, U.S. manufacturing contracted in June and then again in July. After an extremely strong start to 2012, manufacturing growth has halted nearly completely.

American manufacturing is at a critical juncture today. Maintaining and strengthening the nation’s competitiveness in the global market will require a concerted planning and focused financial investment, according to a new report from Georgia Tech and the Council on Competitiveness.

Among the key impediments to expanding America’s global manufacturing and export capacity: 1) the growing inadequacy of its infrastructure; 2) lack of qualified factory workers; 3) tax and regulatory policy challenges; and 4) lack of a national industrial policy.

Infrastructure

“Repair, maintenance and expansion of the nation’s highway and bridge infrastructure are, perhaps, the most important components of ensuring a competitive future,” the Georgia Tech-Council on Competitiveness report states.

The U.S. currently ranks 24th among trade-competitive nations in terms of infrastructure quality. So dilapidated is the country’s transportation network that the Society of Civil Engineers gives the nation’s roads and bridges a “D” grade.

In addition, the highway and rail networks are not adding capacity. While the U.S. population has grown, the roads and rail network hasn’t.

Key Recommendations: Invest in repairing, upgrading, maintaining and expanding ground, sea and air transportation infrastructure; and utilize all freight transportation modes more efficiently.

Workforce

Based on the various perspectives shared during the spring conference, a lack of qualified factory workers is another major manufacturing challenge. The report cites a societal stigma about factory jobs – often misperceived as dirty, low-paying and unsafe – that is leading a younger generation to pursue careers in other industries, though the reality of manufacturing work is far different.

The concern becomes more urgent considering the millions of manufacturing workers who will soon reach traditional retirement age.

Key Recommendations: Expand awareness that factory jobs are high-skill, high-wage positions; work with technical colleges to improve workforce readiness; and revise immigration policies to attract educated foreign graduates to work in the U.S. manufacturing sector.

Taxes/Regulations

While acknowledging the need for taxes, the report states that the U.S. tax system as it is today discourages critical expansion projects. The transportation industry deals with everything from permit processing and route restrictions to environmental regulations and speed limits. “In an industry where time is money, burdensome regulations are costing too much of both,” the report states.

Meanwhile, the study continues, current U.S. compliance and enforcement approaches create excessive costs, timing delays and regulatory risks for infrastructure and manufacturing investments. “Complex tax codes drive investment in high-cost overhead to develop and execute tax-minimization strategies and may create negative bias in planning decisions, causing many to conservatively evaluate investments based on statutory rather than lower effective rates,” according to the report.

Key Recommendations: Review and simplify corporate tax codes, permitting and regulatory processes to reduce the cost, uncertainty and timing risk of investment in the U.S.; and enact Investment Tax Credit legislation that would provide a 25 percent tax credit for new rail capacity.

National Policy

Finally, U.S. competitiveness is suffering from the lack of a national industrial policy.

While all other major trading nations follow a strategic blueprint of objectives and benchmarks for coordinating and advancing their competitive positions in the world market, the U.S. is focused on short-term goals, driven more “by the two-year election cycle than by long-term, sustainable economic development that plans for 10 or 20 years down the road.”

Citing data from the U.N. National Accounts Main Aggregates Database, the Georgia Tech-Council on Competitiveness study reports that America’s share of global manufacturing fell from 21.7 percent in 1980 to 20.5 percent in 2009, while China’s share rose from 1.9 percent in 1980 to 18 percent in 2009, with most of its increase coming at the expense of Europe and Japan.

As industries around the world struggle with ways to recover from, or at least navigate, a still-volatile economic landscape, it is more important than ever for the U.S. economy to put into place the fundamentals underpinning manufacturing growth and development.

“By capitalizing on its unique strengths, America is well positioned to continue growing its manufacturing output and exports, thereby enhancing its global competitiveness,” the report concludes. “The same spirit of innovation and collaboration that once characterized American preeminence in manufacturing can help us regain our competitiveness, creating jobs, increasing exports and serving as a catalyst for a healthy economy.”

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